Insuring the future of the global environment

Authored by AXA XL Global Chief Underwriting Officer, Environmental, Mary Ann Susavidge

Fifty or so years ago, no one gave any thought to where or how waste was discarded. It was just dumped, somewhere. Then came Love Canal.

Located in Niagara Falls, New York, Love Canal gained notoriety in the 1970s due to the discovery of toxic chemicals seeping into the ground and causing health issues for residents. What happened at Love Canal continues to draw attention. A newly released documentary, "Poisoned Ground: The Tragedy of Love Canal," tells the story of how residents rallied together seeking accountability and changes.

Love Canal was not a singular occurrence. There were others. Times Beach, Missouri, similarly faced widespread contamination from dioxin in the 1970s. The 1970s marked a significant turning point, with the emergence of environmental legislation in the U.S., including the Clean Air Act, the Clean Water Act in the United States, and the Comprehensive Environmental Response Compensation and Liability Act of 1980— more commonly known as the “Superfund” act. Superfund refers to the trust fund that the U.S. government set up to pay for cleaning some of the nation’s most polluted sites.

Soon other countries followed. The UK enacted The Environmental Protection Act in 1990. The UN Environmental Programme surveyed its 193 member states to provide an overview of environmental laws around the globe.

Many of these laws enforced liability for cleanup on polluters. To help pay for cleanups, businesses sought protection under their general liability policies. Eventually, insurers implemented the absolute pollution exclusion in liability insurance policies, excluding coverage for bodily injury or property damage arising from pollutants, prompting the need for another insurance solution.

Environmental insurance emerges

Environmental insurance emerged to meet these new needs. A handful of insurers began offering specialized environmental insurance policies to address these risks, providing coverage for pollution-related losses and liabilities. And growing awareness of environmental issues and regulations, the global environmental insurance market continues to grow.

Today, environmental insurance continues to be a valuable tool for mitigating the financial impact of pollution-related incidents and promoting responsible environmental stewardship. It’s become a vital tool for businesses and individuals to protect themselves from the financial risks associated with environmental damage and pollution that may result from business’ operations.

Early policies focused on covering sudden and accidental pollution events, such as industrial spills, and were often tailored to specific industries or activities with high environmental risk profiles, such as hazardous waste facilities, haulers, and environmental services companies.

Pollution insurance policies have evolved to address diverse industry risks as others, including manufacturers, waste management firms, real estate developers, and municipalities, saw the value in having environmental insurance to address cleanup of pollution incidents. Over time, the market has expanded to include a wide range of businesses and organizations – restaurants, colleges and university, agriculture businesses, hotels, entertainment facilities, financial institutions, among many others -- seeking coverage for environmental liabilities. Environmental insurers often work closely with clients to assess their environmental exposures and develop customized insurance solutions that align with their risk management strategies.

In the current global operating environment, insurers are also faced with the challenge of underwriting complex environmental risks in diverse regulatory and operational environments. They must keep abreast of evolving environmental regulations and scientific developments to accurately assess and price these risks.

Supporting transactions

In addition to protecting their operational environmental risks, many businesses have found environmental insurance to be an effective risk management tool in protecting transactions.
Consider mergers and acquisitions. Investors and other parties involved in M&A activity rely on environmental risk transfer programs. These programs are used to resolve issues related to a company's environmental liabilities during transactions, such as helping an acquiring company mitigate the risk associated with historical contamination, regulatory compliance, and potential future clean-up costs of the target company's operations. This can be particularly important when the target company's historical activities may have resulted in environmental liabilities, as it can help facilitate the transaction by providing a level of certainty and protection for both parties involved.

Environmental insurance also addresses the concerns of the buyer, seller, developers and lenders in many commercial real estate transactions. In certain situations, bank lenders could potentially be held liable for pollution conditions at properties to which they are tied via a loan or other financial agreement. Consequently, lenders have become more cautious with transactions involving potentially contaminated property and may require environmental insurance as part of its financing requirements.

Recycling real estate

Environmental insurance’s role in transactions also supports many businesses and communities’ even bigger sustainability goals including cleaning up polluted properties, also known as “brownfields” and returning them to productive reuse. There’s a number of global initiatives and information sharing to facilitate such clean ups around the world. Such efforts contribute to the revitalization of communities by making previously contaminated land usable again, which can support economic development, reduce urban sprawl, and protect existing green space. But it hasn’t always been easy.

When a property is contaminated, the cost of cleanup and remediation can be substantial, and the potential liability for environmental damage can be a significant deterrent to investment and redevelopment of the property. It can be safer, and easier, to just leave it alone. But that meant some valuable real estate would just sit there, unused.

Environmental insurance really helped change that. Such coverage helps to lessens redevelopment risks by covering the costs associated with cleanup, legal expenses, and potential third-party claims arising from pollution incidents. By providing environmental liability protection, environmental insurance facilitates the cleanup and redevelopment of contaminated sites, making it easier for developers to clean up and repurpose properties, thus supporting sustainable land use and urban revitalization.

Over the last decade or so, many community development groups and private developers have successfully used environmental insurance to transfer risks, ease public concern, and assist in the marketing of the site, and even more important, return properties to beneficial use again.

The US Environmental Protection Agency shares a number of success stories on its website. At AXA XL, we don’t have to look far for a Brownfields success. Nearby our Philadelphia and Exton, Pennsylvania offices is The Navy Yard, home to more than 11,000 employees and 145 companies in the office, industrial/manufacturing, and research and development sectors, occupying over 7 million square feet of real estate in a mix of both renovated, historic buildings and new construction. It was the former Philadelphia Naval Yard; the nation’s first shipyard and a former military base and environmental insurance did play a role in its redevelopment.

Brownfields redevelopment is happening everywhere. In the UK for instance, some 100 different projects are receiving funding to transform unused land to build some 100,000 new homes. The Canadian Brownfields Network advocates that brownfields reuse be the preferred approach by developers and each year, honors exemplary projects with Brownie Awards. There is so much potential. In the U.S., there are some 450,000 brownfields sites. Currently, there are only some 30,000 sites have been accessed for their reuse potential.

By providing a financial safety net, environmental insurance encourages property owners and developers to take on the challenge of redeveloping polluted sites, knowing that they are protected from the financial burden of unexpected environmental liabilities. This, in turn, incentivizes the revitalization of brownfield sites and promotes sustainable land use practices. Additionally, environmental insurance enhances the attractiveness of properties for potential buyers or tenants, as it demonstrates a proactive approach to environmental risk management and ensures a level of protection against unforeseen contamination issues.

Recycle, Reduce, Reuse

"Reduce, reuse, recycle" is a key phrase in the context of sustainability and environmental conservation. It emphasizes three important actions that individuals, businesses and other organizations can take to minimize their impact on the environment. Redeveloping blighted sites or brownfield properties is certainly a strong example of how businesses and communities can take action to build more sustainable communities. Such redevelopment activities recycle land, reduces exposure to potential contamination left behind because the property is cleaned up and the risk minimize. And redevelopment reuses resources rather than developing greenfields which serve as protective habitats or open space.

AXA XL’s environmental insurance team has been a long-time pioneer in the environmental insurance market, with nearly 40 years of environmental underwriting experience, and an advocate in helping businesses build their sustainability and be strong stewards of the environment.

To provide environmental insurance, a combination of technical skills and knowledge is essential including a deep understanding of environmental regulations and laws and knowledge of the specific risks and challenges posed by different industries and geographical areas. The environmental insurance market’s most experienced underwriters often have industry experience as environmental engineers and consultants.

AXA XL’s global network is also important in helping companies address environmental liabilities wherever they do business. The international nature of environmental liabilities requires environmental insurers, like AXA XL, to have a deep understanding of local laws and customs in different countries. As the environmental insurance market continues to expand, collaboration between insurers, regulators, and businesses will be essential to ensure effective risk management and sustainable environmental protection on a global scale.

Businesses and individuals alike are recognizing the importance of proactively managing their environmental risks and securing the appropriate insurance coverage to safeguard their financial interests. Given that realization, the use of environmental insurance will only become more common of a risk management tool, helping businesses around the world navigate the complex landscape of environmental risk management. By providing financial protection and support in the event of environmental incidents, environmental insurance to operate with greater confidence and resilience in an increasingly environmentally conscious world.